State audit says DHHS efforts to curb fraud falling short

Promised savings on Medicaid have yet to materialize

lbonner@newsobserver.comJuly 26, 2012 

Vaunted computer programs that the state Department of Health and Human Services and Gov. Bev Perdue promised would help expose Medicaid fraud and save the state money have fallen far short of expectations, according to a state auditor’s report released Thursday.

The audit highlighted four contracts, including ones the state awarded to Cary-based SAS and IBM. Contracts with those companies, signed in 2010, have not yielded the promised returns.

“This is just one in a series of audits that we’ve done over my term where we’ve identified the state of North Carolina does not monitor the terms of a contract to make sure the other side is delivering” the services promised, said state Auditor Beth Wood.

Perdue and state leaders announced the contracts with IBM and SAS with great fanfare in 2010 to demonstrate state efforts to eliminate Medicaid fraud. The state and federal insurance program for the poor and disabled is the fastest-growing part of the state budget. Cracking down on fraud is one of the ways state officials and legislators hope to contain costs.

Only one of the four contracts auditors examined yielded significant monetary benefits to the state. Health Management Systems, which helps recover money from other insurance carriers, got back $157.9 million between July 1, 2010, and Jan. 31, 2012, and earned $14.9 million.

The $2 million SAS contract aimed at curbing fraud and abuse has yielded nothing, according to the audit. SAS did not meet deadlines specified in the contract but was paid as if it had, the audit said.

The contract proposal estimated it would save Medicaid at least $27 million a year and have a return of investment of 1,250 percent, the report said. But, “as of the date of our audit, no funds have been recovered and no actual fraudulent activity has been identified.”

DHHS said Thursday that the SAS system was not up and running during the time of the audit but it has started generating leads that the agency is pursuing.

The state signed a $6 million contract with IBM for software to identify unusual provider billings. The state Medicaid office can try to get money back when it finds providers have billed too much, or have billed for services not provided.

Based on the IBM contract proposal, the expected annual return on investment was 900 percent, putting the money expected to be returned at about $54 million.

As of January, potential returns from IBM related reviews totaled $770,067, and the DHHS Controller’s Office said about $426,000 had been recovered.

DHHS said it expects more reimbursements. “As with most IT projects, a considerable amount of time is required initially for staff to become proficient in software use and to fine-tune the software and reports to meet the user’s needs,” DHHS wrote in its response.

As they write the state budget, legislators factor in how much money they expect can be saved by curbing fraud. Budget writers were cautious this year, said Sen. Pete Brunstetter, a Winston-Salem Republican, because savings of all kinds are hard to count on.

“This is an entitlement program, and it’s very difficult to manage and contain it,” said Brunstetter, one of the chief budget writers. “We’re much more cautious and maybe a little cynical about the ability to see change quickly. That doesn’t mean it can’t be done. We just want to see it before we count on it.”

In May, DHHS announced investigations of more than 200 mental health providers it said were identified using the IBM program. DHHS reported Wednesday that 75 providers had been investigated so far, and 35 were referred to the Medicaid Investigations Unit in the state Attorney General’s Office.

On Thursday, DHHS released letters sent to nine providers of mental health services notifying them that their Medicaid payments were suspended.

The letter to a Person County company said its payments were being suspended because the IBM system revealed excessive treatment of very young patients, Sunday and holiday billings, and a high number of repeat patient visits within five days.

A Fayetteville provider was flagged for “a pattern of frequent and excessive billing of individual recipients.” The Fayetteville counselor saw 100 patients on her busiest day, and nearly a quarter of the services were provided on Saturdays, according to the letter. No on-site review was possible because the counselor’s office couldn’t be found. An audit of a Hillsborough provider found proof of billing for services that weren’t provided, according to one of the letters.

Chrissy Pearson, senior adviser to DHHS Secretary Al Delia, said implementing new systems takes time but even looking for fraud acts as a deterrent.

“Whenever there are billions and billions of dollars going through a system, there are going to be people who attempt to take this money dishonestly,” Pearson said. “We’ve known it’s a problem. Only in recent years have we been able to invest in true solutions. These solutions do take some start-up time.”

North Carolina is the first state to use the IBM software to examine Medicaid data for possible fraud, Pearson said, and the system needed to be tailored to the state’s needs. Now that it’s in use, the software can provide information the state can use to better support allegations of wrong-doing, she said.

“At this point, we’re just beginning to see the promise that these systems can provide,” Pearson said.

Bonner: 919-829-4821

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